Modern Methods of Construction and the Insurance Industry: Positive News?
JPIC has been discussing this topic with insurers for more than two years and this is the first time that an insurer has openly acknowledged its responsibility for actively helping to achieve Net Zero.
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Last week, Aviva’s UK & Ireland CEO, Adam Winslow made the bold statement that Aviva is expanding its underwriting appetite for engineered timber.
“Acting on climate change is at the heart of our strategy. We’re working towards achieving Net Zero by 2040, and our ability to insure a low carbon construction sector is central to this commitment” said Mr Winslow.
JPIC has been discussing this topic with insurers for more than two years and this is the first time that an insurer has openly acknowledged its responsibility for actively helping to achieve Net Zero.
We welcome this declaration, which hopefully marks the start of a more collaborative engagement between the insurance market and property owners and developers.
A number of JPIC’s Real Estate clients have had their plans to utilise modern methods of construction (MMC) in new developments scuppered by a lack of support from the insurer community; they could not obtain a guarantee from insurers that hybrid timber designs would be insurable upon completion.
Real estate owners, developers and investors face a number of issues that require resolution with support from the Insurance Market:
- How do they achieve their ESG targets if insurers will not insure newly developed buildings constructed with MMC?
- How do they convince insurers that the testing carried out on MMC products and their reaction to fire and water is genuine, robust and believable?
- What do they need to do to design a building that has adequate risk management measures in place that will convince insurers to provide insurance capacity?
- When will insurers present a consistent approach to acceptance of risks surrounding the use of MMC?
The final point is especially relevant. Many JPIC clients would like to embark on construction projects with values of £200m or more utilising MMC, but insurance capacity remains limited, so buy-in to design and risk management standards is required from several insurers to be able to insure the finished development.
For insurers, the challenges to providing significant levels of capacity include:
- A lack of confidence in the results of testing of MMC products, particularly how they react in a fire or when exposed to water.
- A lack of understanding of the positive impact risk management and design techniques will have on the risk profile of a building constructed with MMC
- An absence of consistency from insurer to insurer and importantly, an absence of confirmation of the levels of independent testing they would require in order to gain the confidence in timber products that would release sufficient underwriting capacity.
- A lack of loss history from which pricing of capacity can be calculated
So, what needs to happen to really address the issue of a lack of insurance market support for MMC?
The answer lies in greater collaboration between all stakeholders, including insurers, property owners and developers, investors, MMC manufacturers, engineers, architects and even the UK government.
JPIC is aware that a group of developers is currently collaborating to produce a hybrid timber design model for commercial buildings which will incorporate some minimum risk management standards to help mitigate the risks of fire and water damage.
This is a great initiative, but it lacks any input from or engagement with insurers.
JPIC calls for insurers to do more to support the use of MMC by collaborating with each other to provide one voice on what is required to release meaningful capacity at reasonable prices.
A positive move in the right direction would include:
- Providing developers with a clear picture of the levels of independent product testing and the types of testing that would be deemed acceptable, together with some joint financing of such tests
- Agreeing with developers to abide by the outcome of such product testing to unlock capacity and to stand by that capacity in the long term so that developers have greater certainty before committing investment into a project.
Statements such as that from Mr Winslow of Aviva are welcome, provided they are backed up by clear actions including cross-insurer collaboration to provide meaningful support for ESG initiatives into the future.
For more information contact Neil Timberlake, Director JPIC Group – Neil.Timberlake@JPICGroup.com